The official currency of the United States is the US Dollar (USD). On the one hand, it’s currently reflecting increasing volatility in the foreign exchange market. As of late, the USD has significantly lost value. It’s down 0.2% today at just under 98.80 on the US Dollar Index (DXY), which gauges its value against six other major world currencies. The USD currency is particularly most heavily traded in the world. It represents more than 88% of all global foreign exchange turnover, averaging a whopping $6.6 trillion a day in transactions.
Yet even with this extraordinary dominance, the dollar’s recent performance is alarming many traders and economists. The Federal Reserve’s interest rate policies play a crucial role in the dollar’s valuation, particularly as deteriorating labor market conditions heighten expectations for further interest rate cuts. Analysts think that if the USD breaks important technical levels, it would fly higher. A break higher above the October 14 high at 1.4080 is certainly doable.
USD’s Global Influence
The US Dollar is the official currency of the United States. It is used as the ‘de facto’ currency for dozens of countries across the world. After World War II, it replaced the British Pound as the world’s reserve currency. Since then, the dollar has become the bedrock of international trade.
The dollar’s unique role as the world’s primary medium exchange matters. Its pervasive use in everyday commerce is matched by central bank balance sheets. As the global economic landscape shifts, many analysts are forecasting a more volatile USD in the coming years. Much of this change is likely being propelled by increasing inflationary pressures and changing employment figures.
Market Dynamics and Predictions
The USD’s current trajectory suggests a collision course with a bad day ahead. If it breaks through its August 7 low of 1.3722, analysts caution that it could fall further to the psychological support level of 1.3600. In fact, it could even retest June 16’s 1.3540 low. Conversely, if market conditions favor an upward trend, surpassing the recent high of 1.4080 may indicate renewed confidence in the dollar.
The 20-day Exponential Moving Average (EMA) for USD/CAD trends higher at 1.3950, indicating a recent area of stabilization that traders would look for. The 14-day Relative Strength Index (RSI) fluctuates between the 60.00-80.00 speeds, suggesting persistent bullish momentum in current instances.
Economic Indicators and Federal Reserve Responses
Most recently, we heard about just such a divergence from economic activity data and labor market conditions as pronounced by Federal Reserve Chair Jerome Powell.
“Economic activity data are surprising to the upside, creating some tension with the labour market data,” – Powell
This powerful declaration highlights the intricate balance between key economic indicators and Fed policy moves that affect the US Dollar fluctuations. Inflation should be falling below the Fed’s long-standing 2% target, but instead, unemployment is persistently high. Traders have now shifted their focus to the next battleground: what interest rate moves come next.